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April 13, 2009, 8:45 pm
Chrysler Lenders Plan Counteroffer This Week

The senior lenders to Chrysler are planning to make a counteroffer to the Treasury Department this week, pushing back on a debt-reduction plan they say is too coercive, people briefed on the matter told DealBook on Monday.

The Treasury Department has asked these lenders, which include major banks and hedge funds, to reduce their $6.9 billion in debt holdings to about $1 billion as part of a reorganization of Chrysler’s debt.

The goal is to help preserve Chrysler’s financial viability as it pursues a tie-up with Fiat, the Italian carmaker.

But the banks have objected, saying that the Treasury’s plan offers no concessions in exchange for a nearly 86 percent reduction in the value of their holdings. A steering committee comprising eight of these firms is now deciding whether to ask for equity in a combined Chrysler-Fiat, one of these people said.

The Obama administration has given Chrysler until April 30 to reach a deal with Fiat. Its autos task force is preparing for the possibility that the company will not succeed and be forced to file for bankruptcy protection and, potentially, liquidation.

Representatives for Treasury and the bank group declined to comment.

Any attempt to restructure Chrysler is far more dependent on winning the support of the lenders than similar efforts to reorganize General Motors. The sale of Chrysler to Cerberus Capital Management in the summer of 2007 added a mountain of debt, much of which is secured by assets of the carmaker, like plants, equipment and brands.

That gives the government less leverage to negotiate with creditors. Should Chrysler file for bankruptcy and be forced to liquidate, these senior secured lenders would have claims on the company’s assets. By contrast, bondholders in G.M. hold unsecured debt, and would likely be crushed if it were pushed into bankruptcy.

The Treasury Department did not give the creditors’ committee information about the data underpinning its proposal until late Sunday night, people briefed on the matter said. Included were many of the numbers behind the government’s assumptions, as well as information about what a Chrysler-Fiat deal would look like.

Among the major complaints by the creditors’ committee is that, unlike in the negotiations with G.M. creditors, these firms are not being offered any upside in exchange for cutting their debt, one of these people said. G.M. bondholders were previously offered a combination of cash, stock and new debt in exchange for cuts to the value of their holdings. Even under a new, more onerous plan under consideration, these investors would likely receive equity in a new, smaller but healthier G.M. in exchange for reducing the worth of their bonds.

Until this past weekend, the steering committee consisted of four major banks — JPMorgan Chase, Citigroup, Goldman Sachs and Morgan Stanley — and Elliott Management, a hedge fund. The group has since been expanded to include Oppenheimer, the big money manager, and the investment firms Stairway Capital Management and Perella Weinberg Partners, this person said.

LINK:Chrysler Lenders Plan Counteroffer This Week - DealBook Blog -
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